Tim O'Connell's debit card, as well as yours, is ground zero in a battle between banks and stores.
A new law that went into effect in October changed what retailers pay the biggest banks — those with more than $10 billion in assets — for processing debit cards purchases. It used to be that stores paid 1.5 percent of a sale's total, or an average of 44 cents per sale. Now it's a flat rate, capped at 21 cents.
Store owners who pushed for the new law said at the time the limit would save shoppers money. And that's exactly what's happened, those retailers contend. But banks say shoppers aren't seeing savings. Instead, bank personnel argue, store owners are putting the savings to heir bottom lines.
Meanwhile, in an attempt to recoup some of the financial losses that they say resulted from the cap, banks are eliminating debit card rewards programs and charging for checking accounts that used to be free.
So in the tug-of-war between banks and stores, do the customers win or lose? It's a point of contention.
"It's a complicated and somewhat murky area," said Bob Baldwin, vice chairman of card processor Heartland Payment Systems. "It's an ecosystem adjustment."
Many retailers say the money they're no longer paying to process debit card transactions is going back to customers, whether through lowered prices or new equipment to improve the shopping experience.
O'Connell, who uses his Bank of America debit card often for meals and other purchases, said he hasn't seen a difference — not in his bank fees and not when he shops.
"It's hard to see if there are any savings as a consumer," said O'Connell, a Gwinnett teacher. "I figured everything would just stay the same."
Heartland's typical customer — a Main Street restaurant — saves about $1,000 a year, Baldwin said. While their cost of business has gone down, the savings of $83 a month isn't enough to lower prices across the board, he said. But it can mean more specials or other subtle changes.
At Atlanta's Oxford Comics, Games & Collectibles, owner Mike Van Houten said he bought a new air conditioning unit and new display fixtures for the store with the money he's saved. Atlanta-based Home Depot will use its expected $35 million in annual savings, in part, to reduce prices on some items, said Dwaine Kimmet, the company's treasurer and vice president of financial services.
But other retailers say they're using the savings to help cover rising costs.
"Is it making prices come down? No, not really," said Kristen Smith, the chief financial officer of Abbadabba's, a local chain of five shoe stores. "So many fees have gone up, I don't foresee retail prices coming down."
That's the complaint of the Electronic Payments Coalition, a lobbying group for banks, credit unions and card networks. Spokeswoman Trish Wexler said companies that promised their customers would pay less aren't passing their savings along.
"It ended up being a losing proposition for consumers," she said. "They should demand a discount every time they use a debit card."
The costs of processing a debit payment have not decreased for every store, though. Many shops that sell lower-priced items are spending more to accept debit cards because the flat rate is higher than the percentage they had been paying. Jeff Rosengarten, a partner at Ali's Cookies in Marietta and Dunwoody, said if a regular customer comes to one of his stores and tries to pay for a single cookie with a card, he's better off telling the customer to pay for it next time.
"Sometimes, it just doesn't pay to take the sale," he said. "It's the swipe fee."
Beth Robertson, the director of payments research for Javelin Strategy & Research, said most shoppers who are aware of the change didn't expect to see prices go down, despite what the rhetoric may have been. Projected savings for a large company like Home Depot are significantly different than those of a mom-and-pop store.
Robertson said as banks raised fees on customers to make up for the loss of debit card income, much of the burden of paying for paying was shifted from stores to shoppers.
In the past decade, she said, the cost of a basic checking account has risen 26 percent. Fewer banks are offering free checking, though the customer backlash against charging customers for paying with debit cards led banks to drop that fee.
No one from Atlanta-based SunTrust Bank would comment on the impact of the new rule. But in its first-quarter earnings report, the company said its revenue from debit card swipe fees decreased by $41 million compared to the first quarter of 2011.
By ending its debit card rewards program and introducing other items that are fee-based, SunTrust hopes to make back about half the money it expects to lose as a result of the change, the company said.
In the near term, the greatest impact on customers has been on the bank side, through measures such as those SunTrust is taking, said Patricia Hewitt, director of debit advisory service for Mercator Advisory Group. Even if stores have lowered prices, it's difficult to draw a straight line between the fee reduction and the change in cost, she said.
"I don't expect to see it explicitly," she said.
Indeed, few retailers have come out to say that they have lowered prices because of the new rule. Home Depot's Kimmet said that company's savings are part of a pool of money along with other cost reductions that has gone, in part, to that end.
The home improvement company reduced prices on about 3,000 of the 30,000 items it has in a typical store, Kimmet said. While one of the chain's focuses is lowering prices, Kimmet said the number of items that cost less is higher after the law changed. He said he expects prices to continue going down, at his store and others.
"The consumer will benefit in the long term," he said.
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